Risk Management in UK Small and Medium Enterprises

We have utilized the dataset of questionnaires answered by 582 SMEs in UK, to investigate the determinants of the conduct of risk assessment and attitudes towards the importance of insurance. These are shaped as H1 and H2, which were tested by running probit regression. It then improves the understanding of their relationship in H3 by first time adopting the bivariate probit approach in this context. For both models, the results specify an inverted U-shaped relation between the risk assessment/insurance and sizes of SMEs. Meanwhile, we also verify that SMEs emphases on health and safety issues are more willing to apply risk assessment and insurance policy. Another contribution is the introduction of two psychological factors, and we find that people working for dream business are more likely to consider risk assessment to protect their jobs; however, people who joined in setting up the business are less willing to purchase insurance. Moreover, under the model of insurance, we prove two significant factors that undervaluing insurance -- the expensive premium and lack of specified knowledge about the insurance coverage. The model also obtains a remarkable connection between the threats of debts and the importance of insurance. It reinforces the idea that corporate demand for insurance is determined by the constraints on liquidity and the potential probability of ruin. Finally, H3 proves tentative evidence suggesting a positive link between risk assessment and insurance at the level of 90%. It denotes the relationship as complements rather than substitutes